strategic management practices and performance of islamic
TRANSCRIPT
STRATEGIC MANAGEMENT PRACTICES AND PERFORMANCE OF
ISLAMIC BANKS IN KENYA: A CASE STUDY OF GULF AFRICAN BANK
BY
MOHAMED JAFAR SHEIKH SAID.
A RESEARCH PROJECT SUBMITTED IN PARTIAL FULFILLMENT OF THE
REQUIREMENTS FOR THE AWARD OF THE DEGREE OF MASTER OF
BUSINESS ADMINISTRATION, SCHOOL OF BUSINESS, UNIVERSITY OF
NAIROBI
NOVEMBER, 2014
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DECLARATION
This research project is my original work and has not been submitted for examination in
any other University.
Signature________________________ Date___________________________
MOHAMED JAFAR SHEIKH SAID
D61/79273/2012
This research project has been submitted for examination with my approval as University
supervisor
Signature____________________________ Date______________________________
DR. BITANGE NDEMO
LECTURER
DEPARTMENT OF BUSINESS ADMINISTRATION,
SCHOOL OF BUSINESS,
UNIVERSITY OF NAIROBI
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ACKNOWLEDGEMENTS
I take this opportunity to thank God for taking me through this study and for giving me
the strength to go through the whole programme.
I thank my Supervisor Dr. Bitange Ndemo and my moderator Dr. John Yabs for their
guidance and support alongside my fellow students for their time and consultation. I
would also like to register my appreciation to the entire body and management of
University of Nairobi for giving me the opportunity to undertake my studies at the
institution.
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DEDICATION
I dedicate this work to my family especially my mother Asiya Haji Adan and friends
Yahya Dahir, Mohamed Deko, Abdihakeem Haji Farah, Abdullahi Osman
(Commissioner), Mahat Abdi, Osman Muktar and Deka Musa amongst others for their
inspiration, encouragement and support in the course of undertaking this study
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ABSTRACT
Strategic management is a level of managerial activity under setting goals and over
tactics. Strategic management provides overall direction to the enterprise and is closely
related to the field of organization studies. In the field of business administration it is
useful to talk about "strategic alignment" between the organization and its environment or
"strategic consistency". There is strategic consistency when the actions of an organization
are consistent with the expectations of management, and these in turn are with the market
and the context. This study adapted a case study design that aims at exploring strategic
management practices on the performance on the performance of Islamic Banks in Kenya
with reference to Gulf African Bank. The research was qualitative in nature and relies on
primary data obtained from the targeted staffs that work in Gulf African Bank who are
mainly involved in the formulation and implementation of strategies. The data was
obtained from the six management team members belonging to different departments;
who will include the CEO, Head of cooperate, Head of finance, Head of Credit and
director business. The study used content analysis for data presentation. The study finds
that an organization’s strategy must be appropriate for its resources, circumstances and
objectives. The process involved matching the companies' strategic advantages to the
business environment the organization faces. One objective of an overall corporate
strategy is to put the organization into a position to carry out its mission effectively and
efficiently. In conclusion, it is evident although Islamic banks do not distribute returns to
current account owners, the servicing of these accounts, despite their cost, not only
increases the rate of profit, because the deposits are not subject to distribution as they are
guaranteed, but these demand deposits also increase the multiplier of assets/equity rate
which is reflected in the form even a greater increase in the rate of profit. It is
recommended that organizations should employ strategic planning as a way of moving
towards their desired future state. It is also recommended an organization’s strategy must
be appropriate for its resources, circumstances and objectives. The process involved
matching the companies' strategic advantages to the business environment the
organization faces.
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TABLE OF CONTENTS
DECLARATION............................................................................................................... ii
ACKNOWLEDGEMENTS ............................................................................................ iii
DEDICATION.................................................................................................................. iv
ABSTRACT ....................................................................................................................... v
CHAPTER ONE: INTRODUCTION ............................................................................. 1
1.1 Background of the study ........................................................................................... 1
1.1.1 Strategic management practices ......................................................................... 2
1.1.2 Performance of Islamic Banking ........................................................................ 4
1.1.3 Islamic Banking in Kenya .................................................................................. 6
1.1.4 Gulf African Bank .............................................................................................. 8
1.2 Research Problem ...................................................................................................... 9
1.3 Research Objectives ................................................................................................ 11
1.4 Value of the study ................................................................................................... 11
CHAPTER TWO: LITERATURE REVIEW .............................................................. 13
2.1 Introduction ............................................................................................................. 13
2.2 Theoretical Foundation of the Study ....................................................................... 13
2.3 Strategic Management Practices ............................................................................. 14
2.3.1 Strategic Planning Practices ............................................................................. 15
2.3.2 Strategy formulation ......................................................................................... 16
2.3.3 Strategy implementation ................................................................................... 18
2.3.4 Strategy evaluation and control ........................................................................ 21
2.4 Factors influencing Strategic Management Practices ............................................. 22
CHAPTER THREE: RESEARCH METHODOLOGY ............................................. 24
3.1 Introduction ............................................................................................................. 24
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3.2 Research Design ...................................................................................................... 24
3.3 Data Collection ........................................................................................................ 25
3.4 Data Analysis .......................................................................................................... 25
CHAPTER FOUR: DATA ANALYSIS, PRESENTATION AND DISCUSSION ... 26
4.1 Introduction ............................................................................................................. 26
4.2 Strategy Formulation ............................................................................................... 26
4.2.1 Mission and Vision Statement of Gulf African Bank ....................................... 26
4.2.2 Strategy Formulation of Policy Documents ..................................................... 27
4.2.3 Development of Mission and Vision Statements ............................................. 28
4.2.4 Communication of Mission and Vision Statements to Employees .................. 29
4.2.5 Process of Setting Objectives ........................................................................... 30
4.2.6 Situational Analysis during the Planning Process ............................................ 31
4.2.7 Internal and External Environment Impacts on Strategy Formulation ............. 31
4.2.8 Development of Strategies for Operations ....................................................... 32
4.2.9 Challenges Faced while responding to Changes in Internal and External
Environment .............................................................................................................. 33
4.3 Strategic Implementation ........................................................................................ 34
4.3.1 Process of Implementing Strategies ................................................................. 34
4.3.2 Communication of Strategies to Employees .................................................... 35
4.3.3 Employee Empowerment to Implement Strategies .......................................... 35
4.3.4 Employee Recruitment and Retaining Measures.............................................. 36
4.3.5 Challenges Encountered in Strategy Implementation ...................................... 36
4.4 Strategy Evaluation ................................................................................................. 38
4.4.1 Monitoring of Strategic Plan Success .................................................................. 38
4.4.2 Continuous Review of Strategic Plans ............................................................. 39
4.4.3 Institutionalization of Corrective Measures and Procedures in the Strategic
Management .............................................................................................................. 39
4.4.4 Employee Empowerment to take Corrective Actions ...................................... 40
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4.4.5 Strategy Evaluation Involvement ..................................................................... 41
4.4.6 Challenges Facing Strategy Evaluation ............................................................ 41
4.5 Discussion of the Study ........................................................................................... 42
4.5.1 Link to Theory .................................................................................................. 42
4.5.2 Link to Other Studies ........................................................................................ 42
CHAPTER FIVE: SUMMARY OF FINDINGS, CONCLUSIONS AND
RECOMMENDATIONS ................................................................................................ 44
5.1 Introduction ............................................................................................................. 44
5.2 Summary of Findings .............................................................................................. 44
5.3 Conclusion ............................................................................................................... 45
5.4 Recommendations ................................................................................................... 46
5.5 Suggestions for further Research ............................................................................ 46
REFERENCES ................................................................................................................ 48
APPENDIX: INTERVIEW GUIDE .............................................................................. 53
1
CHAPTER ONE
INTRODUCTION
1.1 Background of the study
Strategic management is a level of managerial activity under setting goals and over
tactics. Strategic management provides overall direction to the enterprise and is closely
related to the field of organization studies. In the field of business administration it is
useful to talk about "strategic alignment" between the organization and its environment or
"strategic consistency". According to Arieu (2007) there is strategic consistency when the
actions of an organization are consistent with the expectations of management, and these
in turn are with the market and the context.
The scope of the strategic management process covers organization-wide issues in the
context of a whole range of environment influences. The strategic management process
involves organization, management and the environment as a whole. Thus, in
understanding the strategic management process and how it works, a general knowledge
of the organization, its internal and external environments and management is required.
The environment in which organizations operate is constantly changing with different
factors influencing the organizations. Since the turn of the millennium, the general
business environment has become more volatile, unpredictable and very competitive.
Coping with the increasingly competitive environment has called on firms to rethink their
marketing strategies Pearce and Robinson (2007). The days when firms could simply
wait for clients to beat a path to their door are long gone. Organizations must realize that
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their services and products, regardless of how good they are, simply do not sell
themselves Kotler (2001).
This study focuses on the strategic management practices on performance of Islamic
Banks in Kenya with reference to Gulf African Bank. Strategic management practice is
critical for the success and survival of every organization. Strategic management allows
the organization to be more proactive rather than reactive. It will also enhance the Islamic
banks’ ability to create new investments, liquidity management instruments and methods,
and develop the existing ones. In addition, to increase its ability to take advantage of the
openness Islamic Banks would need to expand its operations into new markets. He stated
that for its survival and success, Islamic banks and financial institutions would need to
work on some landmark strategies like institutional framework, Religious or Shar’iah
framework, promotional framework as well as Research and studies.
1.1.1 Strategic management practices
Strategic management can be considered as a set of decisions and actions that result in
the formulation and implementation of plans designed to achieve a company or
organization’s objectives. It consists of the analysis of decisions and actions an
organization undertakes in order to create and sustain competitive advantages. Thompson
and Strickland (2007) opined that strategic management focuses on the total enterprise as
well as the environment in which it operates, the direction management intends it to head,
management’s strategic plan for getting the enterprise moving in that direction and the
managerial task of implementing and executing the chosen plan successfully.
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Management practices involves a set of processes that are employed to ensure that
significant changes are implemented in an orderly, controlled and systematic fashion to
effect organizational change (Mullins, 1999). Balancing strategic management’s outward-
, inward-, and forward-looking functions helps develop a vision and a strategy for where
and how to move organization reform forward. Balancing these different perspectives is
the essence of managing strategically (Kerzner, 1989).
Strategic management therefore involves identifying of long-range targets, scanning of
the organization’s operating environments, evaluating the organization’s structures and
resources, matching these to the challenges the organization face, identifying
stakeholders and building alliances, prioritizing and putting in place plan of actions, and
making adjustments to fulfill performance objectives over time. Brinkerhoff (1994)
characterizes strategic management practices as looking out, looking in, and looking
ahead. “Looking out” means exploring beyond the boundaries of your organization to set
feasible objectives, identify key stakeholders, and build constituencies for change.
“Looking in” implies critically assessing and strengthening your systems and structures
for managing personnel, finances, and other essential resources. Finally, “looking ahead”
entails welding strategy with structures and resources to reach policy goals, while
monitoring your progress and adjusting your approach as needed.
An organization’s strategy must be appropriate for its resources, circumstances and
objectives. The process involves matching the companies' strategic advantages to the
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business environment the organization faces. One objective of an overall corporate
strategy is to put the organization into a position to carry out its mission effectively and
efficiently. A good corporate strategy should integrate an organization’s goals, policies,
and action sequences (tactics) into a cohesive whole. Organizations employ strategic
planning as a way of moving towards their desired future state. Strategic planning, more
than anything else, is what gives direction to an organization (Mintzberg, Quinn &
Ghoshal, 2009).
1.1.2 Performance of Islamic Banking
In order to actualize the greatest profit possible, there is a need to distinguish between the
long-term and the short-term. A bank, whether Islamic or not, is concerned with making
profit in the long-term without sacrificing the short-term perspectives. Long-term profit is
influenced by the growth of deposits and other funds’ resource elements that give the
bank the opportunities to have profit-generating invested assets. Thus we must consider
the rate of growth of the various forms of deposits (Siddiqi, 2006).
An Islamic bank normally has three types of deposits that determine its capacity to raise
the rates of shareholders’ return. These are current account deposits, unrestricted
investment deposits in savings and Mudharabah accounts, and lastly, off-balance sheet
deposits in investment funds and special or restricted investment accounts. It is erroneous
to think of these deposits as independent of each other. According to Iqbal and Mirakhor
(2011) numerous researches have proven the existence of usually positive links between
them. This has also been confirmed by the reports of the 7 Islamic banks and therefore, in
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marketing and presenting any type of deposit to clients, its effect on other types of
deposits should always be taken into account. In fact, Islamic banks must be able to
measure this effect.
Although Islamic banks do not distribute returns to current account owners, the servicing
of these accounts, despite their cost, not only increases the rate of profit, because the
deposits are not subject to distribution as they are guaranteed, but these demand deposits
also increase the multiplier of assets/equity rate which is reflected in the form even a
greater increase in the rate of profit (Amin, 2008). On the other hand, off-balance sheet
deposits are considered an attractive way to increase the number of clients in addition to
being a very important vehicle to increase the rate of shareholders’ returns, because it
increases the earnings from the agency activities, keeping in mind that these earnings are
less affected by investment risks to which other banking earnings are subjected.
It must be realized that maximization of profit is the objective of the highest priority for
all investment institutions created by private individuals. Consequently, all private-sector
financing institutions have one fundamental objective: to make as much profit as they can
and Islamic banks are not any exception but require effective strategies that can ensure
that they are as profitable as possible (Linbo, 2004). Though Some Islamic banks may
pay little attention to the quality of services they offer to their clients especially if such
banks enjoy a position where it can exercise some monopolistic power in the market.
Many Islamic banks were once in this situation when they were acting alone in their
Islamic financial services’ markets (Mustafa, 2012). Today, however, the monopolistic
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position is weakening because of the multiplicity of Islamic banks in many countries and
the entry of conventional banks into the Islamic finance markets through Shar’iah
compliant windows as seen with Barclays Bank La- Riba sections, Standard Bank’s
Saddiq.
1.1.3 Islamic Banking in Kenya
Barclays Bank of Kenya was the first to test the water in 2005 and there are now eight
financial institutions offering Shar’iah compliant products in Kenya. Among them are
two fully fledged Islamic banks licensed by the Central Bank of Kenya (CBK) in 2007,
First Community Bank and the Gulf African Bank, which opened for business in 2008.
Unlike the Islamic windows of conventional banks, these two organizations offer retail
banking services through a currently limited, but growing network of branches. By mid-
2010 they controlled 0.8% and 1% of banking assets in Kenya according to the Central
Bank of Kenya (Chijoriga and Kaijage ,2012).
The two Islamic banks have been experiencing a tremendous growth in the gross assets,
deposits, capital base, and profits after tax and financing arrangements to customers. This
can be attributed to the expansion of Kenya’s banking sector over the last three to four
years (accounts have tippled) and still a more room for growth. Islamic banks in Kenya
have also had diversification strategy in the services they offer. New services can be
reflected by the large number of accounts and financing these banks have; from salary,
business, personal saving, foreign currency to term deposit accounts and financing of
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trade facilities, SME mortgage, construction, asset-based to working capital
financing(Mustafa,2012)..
From the liquidity ratios of the first community banks in Kenya, increased loans and
advances to customers as well as more investments in associates, subsidiaries, joint
ventures and properties points at more financing arrangements to customers hence more
credit risk due to the advances. The higher financing arrangements to customers have
been enabled by the high growth in financing portfolio as result of rapid growth in
customers’ base and deposits (Mustafa, 2012).
Many players have been seen entering the market with Gulf African Bank that holds the
prestigious position of being the first fully Shari’ah compliant Bank in Kenya perfoming
exceptionally well. The bank started their operations in 2008 and now have 14 branches
spread out in Nairobi, Mombasa, Malindi, Lamu and Garissa. Its operations, which are
based on Islamic principles, have rapidly become a very attractive alternative to
conventional banking. Islamic banking is driven by the increasing demand for ethical,
transparent and fair banking. This provides an attractive alternative to both Muslims and
Non Muslims.
In most Sharia based banks Shar’iah Supervisory Board are formed to ensure adherence
to guidelines in their transactions. Normally the boards comprise of independent
department comprising of renowned scholars with extensive experience in law,
economics and finance as prescribed by Islamic Shar’iah. The Board supervises all
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transactions, supervise and approve investment and financing products, make
recommendations on administrative issues, supervise training programs and prepare
annual certification on the Bank’s Shar’iah compliance.
Most Sharis banks including Gulf Bank focuses on exceptional service saw us recognized
as the 2nd Best Bank in Kenya with the most satisfied customers in the 2009 Kenya
Banking Survey which has seen it break even in their second year of operation as at end
of September 2009. Gulf bank ranking among the commercial banks in Kenya leaped
from the 43rd bank in December 2007 to position 19 as at December 2009 which is an
indication of our growing deposits that shows the potential that Islamic banking has in
this country and region. In addition the bank was recognized as 3rd best Tier II bank in
Kenya as well being the second best in product innovation for our home mortgage
product in the 2010 Kenya Banking Survey. This coupled with an unprecedented growth
of the banks deposit book to Kshs. 8.2 Billion and an asset book worth Ksh 6.2 Billion at
the end of 2010 underlines the strength of our bank.
1.1.4 Gulf African Bank
The genesis of Gulf African Bank (GAB) can be traced back to 2005, when a group of
motivated Kenyans envisioned establishing an Islamic bank as an alternative to
conventional banking in the country. By conducting business on the principles of
Shari'ah, the bank would provide an ethical and fair mode of banking for all.
Gulf African Bank is the first and largest Islamic Bank in Kenya and one of the fastest
growing banks in the history of the banking sector of the country. The bank offers fully
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Shari'ah compliant products and services that address the needs of not just Muslims, but
everyone in the country including individuals, corporate companies, and institutions. The
bank was incorporated on August 9th, 2006 and started operations as a commercial bank
in January 8th 2008, in a historic event, where it was granted the country’s first fully-
fledged commercial banking license as a dedicated Islamic bank, by the Central Bank of
Kenya.
1.2 Research Problem
Strategic management emphasizes formal techniques for setting an organization’s long-
term course, developing plans in the light of internal and external circumstances, and
undertaking appropriate action to reach those goals (Goldsmith, 1997). Strategic
management makes considerable contribution in recognizing and responding to market
changes; new opportunities and threatening developments and also provides the rationale
for management in evaluating competing requests for investment, capital and new staff
thus giving an organization proactive rather than reactive posture.
Gulf bank though operating in a market with more opportunities has not been able to
exhaustively tap on the benefits of the new financial market offered by Shariah based
banking that target the Islamic Community despite the opportunities that the market
provide. Therefore this study seeks to establish the strategic management practices put in
place to improve the performance of Islamic Banking in Kenya.
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Local studies done on strategic management practices are; Kathuku (2004) noted that
more Kenyan organizations have responded to the changing environmental conditions;
Kan’goro (1998) in a study concentrating on aspects of strategy formulation, as opposed
to entire strategic management process, observed that strategic management is practiced
in the British Curriculum Schools in Kenya but recommended that a study be conducted
to document aspects of strategy implementation, evaluation and control in the sector. She
further noted that regular studies be conducted to document the effects of environmental
changes on strategic management in British Curriculum Schools of Kenya. Aosa (1992)
indicated that an investigation of strategic management practices in public sectors
organizations would increase the understanding of strategy processes in organizations in
Kenya. The investigation and understanding of strategic management practices in the
development institution s is crucial in view of the reforms the many financial institutions
are undertaking in the sector, which include introduction of performance based
management in institutions for effective service delivery. Aten’g (2007) also observed
that strategic management is being practiced in the development institution s but
suggested that there is need to undertake further research in strategy implementation in
the sector in view of numerous well written strategic plans that are yet to be
implemented. They did not focus much on how changes in management have been
managed and the impact on the introduction of reforms and modernization in public
corporations in order to ensure sustained success. This study therefore focused on t
strategic management practices on performance of Islamic banks in Kenya a case of Gulf
African Bank. The study therefore seeks to answer the following research questions:
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What strategic management practices adopted by Gulf African Bank? What are the
factors influencing strategic management practices at Gulf African Bank.?
1.3 Research Objectives
To establish the strategic management practices on performance of Islamic banks in
Kenya a case of Gulf African Bank
1.4 Value of the study
The results of this study will be invaluable to researchers and scholars, as it will form a
basic understanding of strategies management practices by Islamic financial institutions
in Kenya to gain competitive advantage as a basis for further research. The students and
academics will use this study as a basis for discussions on Islamic banking adoption of
differentiation strategies. In particular it is hoped that the findings of this study will
enable Islamic banking evaluate whether its own practices accord with what should be
the function of an Islamic banking and its own mandate.
The government agencies and policy makers will make use of this study, since it will
provide useful knowledge in formulation of policies and a regulatory framework for
running campaigns of advocating strategies adopted by Islamic financial institutions in
Kenya as well as new Shari’ah compliant products like the Capital Markets Authority in
Islamic Bonds (Sukuk) and Insurance Regulatory Authority in Islamic Insurance
(Takaful) respectively.
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If Islamic Banks are going to attain high levels of performance then they need to put in
place strategies that can ensure that they attract enough business to do that. Though Some
Islamic banks may pay little attention to the quality of services they offer to their clients
especially if such banks enjoy a position where it can exercise some monopolistic power
in the market, the rising competition from conventional banks offering competitive
products may intensify the levels of competition in the financial market and therefore the
need for effective strategies to improve performance. It will also provide information on
how the clients are benefiting from such system like those who are in conventional
banking and how the banking sector is benefiting. Also the study will contribute to social
and economic understanding on banking systems and help the clients and other citizens to
make decisions on which system between conventional banking and Islamic banking is
suitable for them to follow so as increase their incomes.
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CHAPTER TWO
LITERATURE REVIEW
2.1 Introduction
This section draws on literature in the area of business strategies in response to
competitive environment. Secondary material such as books, journals, and articles which
carry previous research work on the study topic are analyzed.
2.2 Theoretical Foundation of the Study
Strategy theory concerns the explanations of firm performance in a competitive
environment (Porter, 1980). There are many strategy perspectives, and the strategy
process perspective bases their views on what competitive advantage are and on what it
are based influence of information technology on strategic management practices.. A
business that engages its external accountant to provide advice which directly assists
performance (strategic advice on growing revenue), or advice that has an indirect impact
on performance, such as advice directed at improving management control (advice on
regulatory compliance, risk, systems, performance reviews), finance structure
(introducing sources of finance) or financial planning will lead to a competitive edge of
the other. Strategic management required active information gathering and active
problem solving. Functional strategies include marketing strategies, new product
development strategies, human resource strategies, financial strategies, legal strategies,
supply-chain strategies, and information technology management strategies. The
emphasis is on short and medium term plans and is limited to the domain of each
department’s functional responsibility. Each functional department attempts to do its part
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in meeting overall corporate objectives, and hence to some extent their strategies are
derived from broader corporate strategies.
2.3 Strategic Management Practices
Strategic management practices involve the art and science of formulating, implementing,
and evaluating cross-functional decisions that enable an organization to achieve its
objectives. It is the formal process, or set of processes, used to determine the strategies
(actions) for the organization. It focuses on many areas, including the integration of
management; marketing; finance/accounting; production/operations; research and
development; and computer information systems (McKernian, 2006).
Strategic management as a practice involves behaviors and actions that are determined by
both individual human agency and structural/institutional forces. Individuals and groups
who are embedded in social structures that are reproduced and shaped by individual and
group actions make strategic choices (Jarzabkowski, Balogun & Seidl 2007). According
to Vinzant and Vinzant (1996), strategic management is a process carried out at the top of
the organization, which provides guidance, direction and boundaries for all aspects of
operational management.
According to Mintzberg (1978) there are three theoretical groupings or modes of strategy
formulation: the planning mode that depicts the process as a highly ordered, neatly
integrated one; Adaptive mode that depicts the process as one in which many decision
makers with conflicting goals bargain among themselves to produce a stream of
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incremental, disjointed decisions and finally; Entrepreneurial mode where a powerful
leader takes bold , risky decisions toward his vision of the organization’s future.
2.3.1 Strategic Planning Practices
According to Bresser and Bishop (2003), strategic planning practice is the product of the
best minds inside and outside the corporation. The process considers future implications
of current decisions, adjusts plans to the emerging business environment, manages the
business analytically, and links, directs, and controls complex enterprises through a
practical, working management system. Strategic planning practice involves formulation
of vision and mission statement, performance of situational analysis and finally strategy
implementation and choice (Pearce and Robbinson, 2008).
The formality of strategic planning has been associated with the field of strategic
planning from its earliest foundation. The early developments significantly include that of
Andrews (Ansoff, 1965). According to Bresser and Bishop (2003), formalization is the
degree to which the norms of the organization are explicitly defined. He further
distinguished between “formalization”, referring to whether these norms are written
down in manuals and other documents. Formality in strategic planning requires explicit
practices. The reason of having strategic planning written in detail is to ensure strategic
planning process receives commitment from those who are affected by it and to allow an
explicit evaluation and clearly specify objectives is part of the formal strategic planning
(Armstrong, 1982).
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Strategic decisions determine the organizational relations to its external environment,
encompass the entire organization, depend on input from all of the functional areas in the
organization and have a direct influence on the administrative and operational activities
and are vitally important to the long term health of an organization (Shirley, 1982).
Although strategic planning is important, what is more important is how it is practiced in
different organizations. Many organizations keep on redefining their mission and vision
statements, organize seminars and include consultants to formulate strategies so as to
achieve competitive advantage and be able to deal with the unexpected environmental
changes.
Every business must be regenerated again and again. Ian (2006) point out, strategy today
is occurring at a rate that is difficult to sustain. Globalization of markets, fluctuations in
world economy, diversification in services, mergers, acquisitions and industry
deregulations are but a few of the challenges faced by companies today. Companies are
quickly realizing that to thrive in today's competitive environment, they must rapidly
deploy new technologies to support key business objectives.
2.3.2 Strategy formulation
Strategic formulation includes the setting of the mission, goals and objectives for the
organization, the analysis of the external environment as it affects the organisation,
together with its internal resources and the choice of strategic alternatives. Strategy
formulation is the development of long-range plans for they effective management of
environmental opportunities and threats, taking into consideration corporate strengths and
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weakness Johnson and Scholes (2002). It includes defining the corporate Vision, mission,
specifying achievable objectives, developing strategies and setting policy guidelines
Mintzberg (1991). Vision is a short, succinct and inspiring statement of what the
organization intends to become and to achieve at some point in the future. Its often state
in competitive terms Rosen (1995).
An organization’s mission is its purpose, or the reason for its existence. It states what it is
providing to society Johnson and Scholes (2002). A well-conceived mission statement
defines the fundamental, unique purpose that sets a company apart from other firms of its
types and identifies the scope of the company‘s operation in terms of products offered
and markets served Thomson (1999). Objectives are the end results of planned activity;
they state what is to be accomplished by when and should be quantified if possible Grant
(2005). The achievement of corporate objectives should result in fulfillment of the
corporation’s mission David (1989).
Mintzberg (1999) state that just as every product or business unit must follow a business
strategy to improve its competitive position, every corporation must decide its
orientation. A corporation’s directional strategy is composed of three general orientations
towards growth (sometimes called grant strategies): Growth strategy expands the
company’s activities, Stability strategies make no change to the company’s current
activities and Retrenchment strategies reduce the company’s level of activities.
Assessment of stakeholder power and the impact of the organization’s culture on strategic
decision-making are also important areas for analysis. Strategic choice is based on factors
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such as what is desirable for the organization, what it is feasible for it to achieve with the
available resources and competences and what is the desirability of potential strategies.
2.3.3 Strategy implementation
Strategic implementation is concerned with affecting the chosen strategy for the
organisation that is, putting the strategy into practice. Strategic implementation always
involves a degree of change and the effective management of change can significantly
affect the successful implementation of the desired strategy Alexander (1985). Strategy
implementations amongst schools that are members of British Curriculum Schools of
Kenya (BCSK) for instance involves summing the total of the activities and choices
required for the execution of strategic plan by which strategies and policies are put into
action through the development of programs , budgets and procedures Coulter (2005).
Although implementation is usually considered after strategy has been formulated,
implementation is a key part of strategic management.
Thus strategy formulation and strategy implementation are the two sides of same coin.
Depending on how the corporation is organized those who implements strategy will
probably be a much more divorced group of people than those who formulate it. Most of
the people in the organization who are crucial to successful strategy implementation
probably had little to do with the development of corporate and even business strategy.
Therefore they might be entirely ignorant of vast amount of data and work into
formulation process. This is one reason why involving middle managers in the
formulation as well as in the implementation of strategy tends to result in better
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organizational performance Johnson and Scholes (2002). The managers of divisions and
functional areas worked with their fellow managers to develop programs, budgets and
procedures for implementation of strategy Johnson and Scholes (2002). They also work
to achieve synergy among the divisions and functional areas in order to establish and
maintain a company’s distinctive competence.
A program is a statement of the activities or steps needed to accomplish a single use plan.
The purpose of program is to make a strategy action oriented. Budgets: A budget is a
statement of corporation’s program in monitory terms. After programs are developed, the
budget process begins. Planning a budget is the last real check a corporation has on the
feasibility of its selected strategy. An ideal strategy might found to be completely
impractical only after specific implementation programs are costed in detail.
Procedures: These are system of sequential steps or techniques that describe in detail how
a particular task or job is to be done.
One of the goals to be achieved in strategy implementation is synergy between functions
and business units, which is why corporations commonly reorganize after an acquisition
King (2002). The acquisition or development of additional product lines is often justified
on the basis of achieving some advantages of scale in one or more of company’s
functional areas. Implementation also involves leading, motivating people to use their
abilities and skills most effectively and efficiently to achieve organizational objectives
Slack (2002). Leading may take the form of management leadership communicated
20
norms of behavior from the corporate culture or agreement among workers in
autonomous work groups.
Company Manage Corporate Culture: Because an organization’s culture can exert a
powerful influence on the behavior of all employees, it can strongly affect a company’s
ability to shift its strategic direction Cagliano (2001). An optimal culture is one that best
supports the mission and strategy of the company of which it is a part. This means that,
like structure and staffing, corporate culture should follow strategy. A key job of
management is therefore to evaluate; what a particular strategy change will mean to the
corporate culture, whether a change in culture will be needed and whether an attempt to
change the culture will be worth the likely costs Pearce and Robinson (2000).
Communication may be used to manage Culture. Communication is crucial to effectively
managing change Pfeffer (1998). Companies in which major cultural changes have
successfully taken place had the following characteristics in common; the Chief
executive officer and other top managers had a strategic vision of what the company
could become and communicated this vision to employees at all levels and the vision was
translated into the key elements necessary to accomplish that vision. Deculturation
involves the disintegration of one company’s culture resulting from unwanted and
extreme pressure from the other to impose its culture and practices (Pearce and Robinson
2000).
21
2.3.4 Strategy evaluation and control
Strategic evaluation is perhaps the less-researched part of the strategy process but it is
vital in assessing the level of success of the chosen strategy. It is not only concerned with
performance and performance measures but also helps to signal when the strategy
requires adjustment in the light of experience and in the context of a rapidly changing
external environment, as strategy is a continuous process rather than a single event that
involves four basic elements. This includes determining whether deadlines have been
met, the implementation steps and processes are working correctly and whether the
expected results have been achieved. If a shortcoming is discovered against the
mentioned outlined expected results, then the strategy can be modified or reformulated
Johnson and Scholes (2002).
The standard performance is a bench mark with which the actual performance is to be
compared. The reporting and communication system help in measuring the performance.
If appropriate means are available for measuring the performance and if the standards are
set in the right manner, strategy evaluation becomes easier. But various factors such as
manager’s contribution are difficult to measure. Similarly divisional performance is
sometimes difficult to measure as compared to individual performance. Thus, variable
objectives must be created against which measurement of performance can be done. The
measurement must be done at right time else evaluation will not meet its purpose. For
measuring the performance, financial statements like - balance sheet, profit and loss
account must be prepared on an annual basis.
22
Taking Corrective Action - Once the deviation in performance is identified, it is essential
to plan for a corrective action. If the performance is consistently less than the desired
performance, the strategists must carry a detailed analysis of the factors responsible for
such performance. If the strategists discover that the organizational potential does not
match with the performance requirements, then the standards must be lowered. Another
rare and drastic corrective action is reformulating the strategy which requires going back
to the process of strategic management, reframing of plans according to new resource
allocation trend and consequent means going to the beginning point of strategic
management process.
2.4 Factors influencing Strategic Management Practices
According to Aosa (1992) the main factors influencing strategic management practices
are social, economic, political and infrastructural factors, while Mazzarol (1999) submit
that strategic management practice is partly a function of contextual/environmental
factors. However, Watson (1998) have submitted that a multitude of factors can influence
the business tendencies of organizations functions. Moreover, British Curriculum Schools
of Kenya (BCSK), therefore, includes decisions regarding the flow of financial and other
resources to and from a company’s product lines and business units. Though a series of
coordinating devices, a company transfers skills and capabilities developed in a one unit
to other units that need such resources. In this way, it attempts to obtain synergies among
numerous product lines and business units so that the corporate whole is greater than the
sum of its individual business unit parts.
23
Four empirical indicators of the potential of firm resources to generate sustained
competitive advantage can be value, rareness, inimitability, and non-substitutability. In
Barney (1991) firm resources include all assets, capabilities, organizational processes,
firm attributes, information, knowledge, etc. controlled by a firm that enable the firm to
conceive and implement strategies that improve its efficiency and effectiveness.
In this study, a firm is said to have a competitive advantage when it is implementing a
value creating strategy not simultaneously being implemented by any current or potential
competitors. Furthermore, a firm is said to have a sustained competitive advantage when
it is implementing a value creating strategy not simultaneously being implemented by any
current or potential competitors and when these other firms are unable to duplicate the
benefits of this strategy Barney (1991). He further argued that to have the potential to
generate competitive advantage, a firm resource must have four attributes: (a) it must be
valuable, in the sense that it exploits opportunities and/or neutralizes threats in a firm’s
environment; (b) it must be rare among a firm’s current and potential competition; (c) it
must be imperfectly imitable; and (d) there cannot be strategically equivalent substitutes
for this resource.
24
CHAPTER THREE
RESEARCH METHODOLOGY
3.1 Introduction
This chapter is a description of the methodology used in the study to find answers to the
research question. In this chapter, the research methodology is presented in the following
order, research design, target population, sampling procedure, data collection methods,
instruments of data collection and finally the data analysis. The following sections
provide a detailed description of the methodology utilized in the study.
3.2 Research Design
This study adapted a case study design that aims at exploring strategic management
practices on the performance on the performance of Islamic Banks in Kenya with
reference to Gulf African Bank. According to Denvir and Millet (2003), research design
provides the glue that holds the research project together. A structure is used to
restructure the research, to show how all the major parts of the project, which include
samples or groups, measures, treatments or programs, and methods of assignment that
work together to try to address the central research questions.
The research was qualitative in nature and relies on primary data obtained from the
targeted staffs that work in Gulf African Bank who are mainly involved in the
formulation and implementation of strategies. The research used qualitative research
approach that involved the analysis of the content of information collected from the
25
interviews through focused group. Qualitative method provided in-depth explanation of
the study weighing both sides of the argument.
3.3 Data Collection
The researcher used an interview guide for data collection instrument. The interview
guide is considered appropriate because it provides the participants with a chance to
present an in depth information on the strategic management practices on the
performance on the performance of Islamic Banks in Kenya.
The data was obtained from the six management team members belonging to different
departments; who included the CEO, Head of cooperate, Head of finance, Head of Credit
and director business. The management team was compared against each other in order to
get more revelation on business strategy used by Gulf bank of Kenya in response to
changing competitive environment in Kenya. Analysis of data collected was compared
with the theoretical approaches and documentations cited in the literature review.
3.4 Data Analysis
The study used content analysis for data presentation. Mugenda and Mugenda (2003)
define content analysis as a technique for making inferences by systematically and
objectively identifying specified characteristics of messages and using the same to relate
trends.
26
CHAPTER FOUR
DATA ANALYSIS, PRESENTATION AND DISCUSSION
4.1 Introduction
This chapter presents data analysis, presentation and interpretation. The objective of this
study was to establish the strategic management practices on performance of Islamic
banks in Kenya a case of Gulf African Bank.
The study targeted six management team members belonging to different departments;
who included the CEO, Head of cooperate, Head of finance, Head of Credit and director
business. All the interviews were conducted successfully. The compiled and filled
interview guides were edited in order to ensure completeness and consistency. Content
analysis was applied with the aim of making general statements based on how categories
and themes of data are related. Mugenda (2003) defines content analysis as a technique
for making inferences by systematically and objectively identifying specified
characteristics of messages and using the same to relate trends.
4.2 Strategy Formulation
4.2.1 Mission and Vision Statement of Gulf African Bank
The interviewees stated that the bank has a mission and vision statement. One of the
respondent stated that the company’s vision is to be the leading Shari'ah Compliant
financial services provider in our market. He also added by stating by the company’s
mission is to provide innovative and competitive financial services solutions
27
professionally through principles of fairness and integrity while enhancing the wellbeing
of our customers, staff and the community.
Other than the mission and vision statements, the interviewees also stated that the
company operations are governed by core values. The core values are based on
Integrity - The principles of Shari'ah compliance guide all that we do
Teamwork - Our relationships with each other is why we succeed
Professionalism - To global standards, and to meet the needs of our customers
4.2.2 Strategy Formulation of Policy Documents
The interviewees stated that basic strategic planning is comprised of several components
that build upon the previous piece of the plan, and operates much like a flow chart.
However, prior to embarking on this process, it is important to consider the players
involved. There must be a commitment from the highest office in the organizational
hierarchy. Without buy-in from the head of a company, it is unlikely that other members
will be supportive in the planning and eventual implementation process, thereby dooming
the plan before it ever takes shape. Commitment and support of the strategic-planning
initiative must spread from the president and/or CEO all the way down through the ranks
to the line worker on the factory floor.
The interviewees also stated that just as importantly, the strategic-planning team should
be composed of top-level managers who are capable of representing the interests,
concerns, and opinions of all members of the organization. As well, organizational theory
28
dictates that there should be no more than twelve members of the team. This allows group
dynamics to function at their optimal level. The components of the strategic-planning
process read much like a laundry list, with one exception: each piece of the process must
be kept in its sequential order since each part builds upon the previous one. This is where
the similarity to a flow chart is most evident, as can be seen in the following illustration.
The only exceptions to this are environmental scanning and continuous implementation,
which are continuous processes throughout. This article will now focus on the discussion
of each component of the formulation process: environmental scanning, continuous
implementation, values assessment, vision and mission formulation, strategy design,
performance audit analysis, gap analysis, action-plan development, contingency planning,
and final implementation. After that, this article will discuss a Japanese variation to
Strategy Formulation, Hoshin Planning, which has become very popular.
4.2.3 Development of Mission and Vision Statements
The interviewees stated that the mission statement should is a concise statement of
business strategy and developed from the customer's perspective and it should fit with the
vision for the business.
The interviewees also stated that mission statements will have multiple customer groups
that purchase for different reasons. In these cases, one mission statement can be written to
answer each of the three questions for each customer group or multiple mission
statements can be developed. Also, as a final thought, remember that your vision and
mission statements are meant to help guide the business, not to lock you into a particular
29
direction. As your company grows and as the competitive environment changes, your
mission may require change to include additional or different needs fulfilled, delivery
systems, or customer groups. With this in mind, your vision and mission should be
revisited periodically to determine whether modifications are desirable.
The interviewees in regards to the vision statement stated that the vision statement spells
out goals at a high level and should coincide with the founder's goals for the business.
Simply put, the vision should state what the founder ultimately envisions the business to
be, in terms of growth, values, employees, contributions to society, and the like;
therefore, self-reflection by the founder is a vital activity if a meaningful vision is to be
developed. As a founder, once you have defined your vision, you can begin to develop
strategies for moving the organization toward that vision. Part of this includes the
development of a company mission.
4.2.4 Communication of Mission and Vision Statements to Employees
The interviewees stated that the mission and vision statements are communicated to
employees through the preparation of a visual aid. PowerPoint presentations, slide shows
and other methods of communication should incorporate the items on the list. Company
colors and slogans can enforce the company's solidarity throughout all offices. The
mission and vision statement are also presented at meetings. This enables the message to
remain positive and actionable.
30
The interviewees also stated that the mission and vision statement are communicated
through scheduled meetings. In this case, a venue large enough to hold every employee at
the local level is reserved. The company CEO unveils the new mission and vision
statements.
4.2.5 Process of Setting Objectives
The interviewees stated that in a planning consultation, the necessary qualifications and
competencies are first identified for an employee and then concrete objectives and
required performance levels are agreed. For example, sales targets could be defined and
the employee could agree to take on specific tasks in a project, and so on. These aspects
can be defined by the manager, by the employee or both. The employee’s personal
training and development requirements are discussed and entered in the objective setting
agreement.
The respondents also stated that during the review, the objectives agreed with the
employee during the planning phase are checked and adjusted to reflect the current
situation. The manager and employee discuss the possible need for support, establish
whether the objectives defined in the planning phase are still relevant, and add further
objectives or decide to delete obsolete ones. Furthermore, the manager can make
comparisons between the objectives set previously and the employee’s current
performance.
The respondents also stated that setting standards, they need to be enforceable and
teachable. It is important that employees understand the standards they are required to
31
meet, and what will happen if they fail to live up to these expectations. If this isn't done,
then the standards will be meaningless and the organization will not have a basis for its
organization and quality control processes.
4.2.6 Situational Analysis during the Planning Process
The interviewees stated that situational analysis during the planning process is carried out
using SWOT analysis. One of the interviewees stated that SWOT Analysis is a useful
technique for understanding your Strengths and Weaknesses, and for identifying both the
Opportunities open to you and the Threats you face.
The interviewees also stated that SWOT Analysis is a simple but useful framework for
analyzing your organization's strengths and weaknesses, and the opportunities and threats
that you face. It helps you focus on your strengths, minimize threats, and take the greatest
possible advantage of opportunities available to you.SWOT Analysis can be used to "kick
off" strategy formulation, or in a more sophisticated way as a serious strategy tool. You
can also use it to get an understanding of your competitors, which can give you the
insights you need to craft a coherent and successful competitive position.
4.2.7 Internal and External Environment Impacts on Strategy Formulation
The interviewees stated that identification of strategic factors requires systematic analysis
of both external and internal environment of the firm. External environment analysis
comprises of micro, and macro analysis of the business environment.' PESTEL' analysis
is macro analysis. This will determine the strategic factors that indicate opportunity and
32
threat in the business environment. The internal environment of the firm is created by the
interaction of people, process and technology in the prevailing organization culture.
Strategic factors of firm's strength and weakness are identifiable in all the functional
areas of the firm. Say, market share, profitability, skill, productivity etc. Firm's mission
leads to objectives. The integration of strategic factors, result in realization of objectives.
Policies, plans and programs are required to be worked out for achievement of objectives
through proper allocation of organizational resources.
The interviewees also stated that creating an effective liaison between strategy
formulators and strategy implementers is a major factor that impacts strategy formulation.
They also mentioned that the existing leadership style and behavior leads to set up
organizational culture which in turn is considered fundamental in both strategy
formulation and implementation. Strategy implementation is even more sensitive to the
culture and the manner that the organization deals with resistance to change.
4.2.8 Development of Strategies for Operations
One of the interviewees stated that Operations strategy is the total pattern of decisions
which shape the long-term capabilities of any type of operations and their contribution to
the overall strategy, through the reconciliation of market requirements with operations
resources.
The interviewees stated that they use tows matrix as a tool for developing the strategies
for their operations. By analyzing the external environment (threats and opportunities),
33
and your internal environment (weaknesses and strengths), you can use these techniques
to think about the strategy of your whole organization, a department or a team. You can
also use them to think about a process, a marketing campaign, or even your own skills
and experience.
4.2.9 Challenges Faced while responding to Changes in Internal and External
Environment
The interviewees stated that it is difficult for even the best decision makers to monitor
their business environment and then respond appropriately to changes as and when they
occur. In competitive industries, where organizations continually face challenges posed
by a volatile external environment, decision makers have to be particularly ready to
respond. This involves making strategic changes that bring the organization’s internal
structure and operation into line with the changed external environment.
One of the interviewees also stated that Organizational change is ineffective without
strong leadership. Managing change requires a strong and unwavering commitment from
the CEO or change leader, and the team that drives and supports the change effort, to
create buy-in and gain the commitment of all stakeholders. It has been argued that change
cannot be managed, but rather one should be preparing for, leading, and responding to
change. It is a fact that change is constant and unavoidable, and organizational survival is
dependent on developing the ability to adapt to and embrace change proactively.
34
4.3 Strategic Implementation
4.3.1 Process of Implementing Strategies
One of the interviewees stated that the process involves clarifying the strategy. All too
often, strategies are expressed as high-level statements that resonate with board and
executive levels but fall flat with mid-level and frontline personnel. Unfortunately, if
people don’t understand the strategy, they are unable to connect with it. So the first step
is to clarify your strategy in a way that people in your organization can rally to support its
implementation. Done well, this strategy will tie together your goals and objectives and
clearly explain what you intend to do.
The interviewees agreed that implementing strategies involved communicating it. One of
the respondents claimed that they have never encountered an organization where I heard
from people that we communicate too often or with plenty of clarity. So then,
communication is the second C. Powerfully communicating the essence of your strategy
at every level of the organization using multiple mediums is the key here.
The interviewees stated that the final process in implementing strategies involves
Cascade the strategy. One of the interviewees stated that if strategy is “what” you do then
tactics are “how” you do it. And if you want your strategy implemented well, you need to
cascade it throughout the organization and get to the practical and tactical components of
people’s jobs every day.
35
4.3.2 Communication of Strategies to Employees
The interviewees agreed that the same procedure applied in communicating the mission
and vision statement is applied in communicating the strategies. The strategies
communication begins with the preparation of a visual aid. PowerPoint presentations,
slide shows and other methods of communication should incorporate the items on the list.
The strategies are also communicated at meetings. This enables the message to remain
positive and actionable.
4.3.3 Employee Empowerment to Implement Strategies
The interviewees stated that the employees are empowered to implement strategies
through Open Dialogue. One of the interviewees stated that this involves creating a
system for open dialogue between employees and management, setting up a drop box for
suggestions, rewarding employees who offer ideas that save the company time or money,
and meeting with department managers to learn how to make workers under them feel
more empowered.
The interviewees also stated that the employees are empowered through decision making
opportunities. They stated that employees should be allowed to make important decisions
for items directly impacting their own job. However, one of the interviewees cautioned
that without a reward system, employees might be too frightened to try new things for
fear of losing their jobs.
36
4.3.4 Employee Recruitment and Retaining Measures
One of the interviewees stated that the recruitment process poses as an issued in the
organization. However, While there's no guarantee that putting your employees first,
maximizing your best workers, staying involved and assessing emotional intelligence
during the hiring process will fill every open position in the company.
The interviewees agreed that the best way to hire and keep top talent is to create a
company culture where the best employees want to work, a culture in which people are
treated with respect and consideration at all times. One of the interviewees stated that
although you may not be able to fill every position in your company even if you have a
strong corporate culture, researchers say that one sure way to maximize your best
employees is to place them in positions of great influence.
4.3.5 Challenges Encountered in Strategy Implementation
The interviewees stated that some of the challenges encountered in strategy
implementation include insufficient leadership attention. one of the interviewees
mentioned that too often, law firm leaders view the strategy development process as a
linear or finite initiative. After undergoing a resource intensive strategic planning
process, the firm's Managing Partner and Executive Committee members may find
themselves jumping back into billable work or immersing themselves in other firm
matters, mistakenly believing that writing the plan was the majority of the work
involved. Within weeks of finalizing the plan, strategies start to collect dust, partners
37
lose interest, and eventually, months pass with little or no reference to the plan or real
action from firm leaders to move forward with implementation.
The interviewees also stated that ineffective leadership poses as a challenge. Leading
strategy implementation requires a balancing act - the ability to work closely with
partners in order to build cohesion and support for the firm's strategy, while maintaining
the objectivity required in order making difficult decisions. Strategy implementation
frequently fails due to weak leadership, evidenced by firm leaders unable or unwilling to
carry out the difficult decisions agreed upon in the plan. To compound the problem,
partners within the firm often fail to hold leaders accountable for driving implementation,
which ultimately leads to a loss of both the firm's investment in the strategy development
process as well as the opportunities associated with establishing differentiation in the
market and gaining a competitive advantage.
The interviewees also stated that having a weak or inappropriate strategy is also a
problem. During the course of strategic planning, the lack of a realistic and honest
assessment of the firm will lead to the development of a weak, inappropriate or
potentially unachievable strategy. A weak strategy may also result from overly
aspirational or unrealistic firm leaders or partners who adopt an ill-fitting strategy with
respect to the firm's current position or market competition. Without a viable strategy,
firms struggle to take actions to effectively implement the plan identified.
38
The interviewees stated resistance to change is the major challenge faced. They stated
that the difficulty of driving significant change in an industry rooted in autonomy and
individual lawyer behaviors is not to be underestimated. More often than not, executing
on strategy requires adopting a change in approach and new ways of doing things. In the
context of law firms, this translates to convincing members of the firm, and in particular
partners, that change is needed and that the chosen approach is the right one.
4.4 Strategy Evaluation
4.4.1 Monitoring of Strategic Plan Success
The interviewees agreed that the Board and senior staff agree on how best to regularly
monitor implementation. The staffs are also given the freedom to proceed with day-to-
day implementation; however, the Board should regularly monitor progress so that
additional support on a task-by-task basis can be provided if progress slows. Success is
about implementing the changes sought; not just developing the plan, and the Board and
senior staff should own the successful implementation. Most high-success nonprofits
specifically discuss their on-going implementation efforts 3-4 times per year, and many
have “dashboards” with key metrics to assist in monitoring implementation and results.
One of the interviewees also stated that the strategic plans are measured by monitoring
progress against the key priorities that it identifies. They agreed that they are also
measured by identifying strengths and weaknesses that may arise in the organization. One
of the interviewees added that in order to monitor the success of the strategic plan, the
right people must be ready to assist you with their unique skills and abilities.
39
4.4.2 Continuous Review of Strategic Plans
The interviewees stated that Gulf African Bank is involved in continuous review of its
strategic plans. They agreed that the company has a clear sense of the decision making.
This ensures that all strategies are subject to constant modifications as the internal and
external factors influencing a strategy change constantly.
One of the interviewees stated that continuous review involves identifying critical issues.
They claimed that this involves issues that may arise from the identified strengths,
weaknesses, opportunities and threats. Additionally, they stated that continuous review
also involves identifying opportunities and threats. This is in relation to identifying the
outside influences over which you have little control; political/legal, economic,
social/cultural and technological factors.
4.4.3 Institutionalization of Corrective Measures and Procedures in the Strategic
Management
The interviewees stated that corrective measures and procedures in the strategic
management are institutionalized. The standard performance is a bench mark with which
the actual performance is to be compared. The reporting and communication system help
in measuring the performance. If appropriate means are available for measuring the
performance and if the standards are set in the right manner, strategy evaluation becomes
easier. But various factors such as managers contribution are difficult to measure.
Similarly divisional performance is sometimes difficult to measure as compared to
40
individual performance. Thus, variable objectives must be created against which
measurement of performance can be done. The measurement must be done at right time
else evaluation will not meet its purpose. For measuring the performance, financial
statements like - balance sheet, profit and loss account must be prepared on an annual
basis.
One of the respondents stated that it is essential to plan for a corrective action. If the
performance is consistently less than the desired performance, the strategists must carry a
detailed analysis of the factors responsible for such performance. If the strategists
discover that the organizational potential does not match with the performance
requirements, then the standards must be lowered. Another rare and drastic corrective
action is reformulating the strategy which requires going back to the process of strategic
management, reframing of plans according to new resource allocation trend and
consequent means going to the beginning point of strategic management process.
4.4.4 Employee Empowerment to take Corrective Actions
The interviewees stated that a primary goal of employee empowerment is to give workers
a greater voice in decisions about work-related matters. Their decision-making authority
can range from offering suggestions to exercising veto power over management
decisions. Although the range of decisions that employees may be involved in depends on
the organization, possible areas include: how jobs are to be performed, working
conditions, company policies, work hours, peer review, and how supervisors are
evaluated.
41
One of the interviewees added that sometimes, employees are not motivated because of
the way their jobs are designed. For example, consider the job of an assembly-line worker
who does nothing but place a screw in a hole as the product passes by on the production
line. Such a job provides little opportunity for workers to gain intrinsic rewards. Job
enrichment aims to redesign jobs to be more intrinsically rewarding. Certain job
characteristics help managers to build enrichment into jobs.
4.4.5 Strategy Evaluation Involvement
The interviewees stated that every individual involved with the company is involved in
the evaluation of strategies. They claimed that they schedule meetings to discuss progress
reports. Present the list on the strategic evaluation. This enables all company employees
to be knowledgeable.
One of the interviewees added that strategic implementation is critical to a company’s
success. This is based on the fact that it focuses on the whole organization. The
interviewees also agreed that political, economic, social, technological, legal and
environmental landscape are external factors that have the ability of impacting the
strategy evaluation in the organization.
4.4.6 Challenges Facing Strategy Evaluation
The interviewees stated that the challenges experienced in strategic plans are attributable
to failures in the evaluation process. One of the interviewees stated that the senior
42
management team must come together to review, discuss, challenge, and finally agree on
the strategic direction and key components of the plan.
One of the employees added that the greatest mistake is not developing ownership in the
evaluation process. Additionally, lack of communication also poses as a challenge in the
evaluation process. They concluded by stating that the company management must be
communicative and open, with scheduled meetings for updates in relation to the strategic
evaluations.
4.5 Discussion of the Study
The discussion of the study is divided into the following two sections
4.5.1 Link to Theory
The strategic management process involves organization, management and the
environment as a whole. Thus, in understanding the strategic management process and
how it works, a general knowledge of the organization, its internal and external
environments and management is required. The environment in which organizations
operate is constantly changing with different factors influencing the organizations.
4.5.2 Link to Other Studies
According to Slack (2002), Strategic management can be considered as a set of decisions
and actions that result in the formulation and implementation of plans designed to
achieve a company or organization’s objectives. It consists of the analysis of decisions
43
and actions an organization undertakes in order to create and sustain competitive
advantages.
Gulf African Bank strategy concentrates on business unit strategy that is concerned more
with how a business competes successfully in a particular market. Operational Strategy is
concerned with how each part of the business is organized to deliver the corporate and
business-unit level strategic direction. Operational strategy therefore focuses on issues of
resources, processes, people etc.
The findings of this research identify that, Management practices involves a set of
processes that are employed to ensure that significant changes are implemented in an
orderly, controlled and systematic fashion to effect organizational change. It was also
found that Gulf African Banks strategy is all about identifying stakeholders and building
alliances, prioritizing and putting in place plan of actions, and making adjustments to
fulfill performance objectives over time. In conclusion, it can be stated that in order for
strategy to achieve its purpose there is the need for a deep thinking. To outsmart
competitors is not an ordinary task. An organization’s strategy must be appropriate for its
resources, circumstances and objectives.
44
CHAPTER FIVE
SUMMARY OF FINDINGS, CONCLUSIONS AND RECOMMENDATIONS
5.1 Introduction
This chapter presents a summary of the study findings, conclusions and
recommendations. The findings are summarized in line with the objective of the study
which was to establish the strategic management practices on performance of Islamic
banks in Kenya a case of Gulf African Bank.
5.2 Summary of Findings
Strategic management practice is critical for the success and survival of every
organization. Strategic management allows the organization to be more proactive rather
than reactive. It will also enhance the Islamic banks’ ability to create new investments,
liquidity management instruments and methods, and develop the existing ones. In
addition, to increase its ability to take advantage of the openness Islamic Banks would
need to expand its operations into new markets. He stated that for its survival and
success, Islamic banks and financial institutions would need to work on some landmark
strategies like institutional framework, Religious or Shar’iah framework, promotional
framework as well as Research and studies.
The study finds that an organization’s strategy must be appropriate for its resources,
circumstances and objectives. The process involves matching the companies' strategic
advantages to the business environment the organization faces. One objective of an
overall corporate strategy is to put the organization into a position to carry out its mission
45
effectively and efficiently. A good corporate strategy should integrate an organization’s
goals, policies, and action sequences (tactics) into a cohesive whole. Organizations
employ strategic planning as a way of moving towards their desired future state. Strategic
planning, more than anything else, is what gives direction to an organization.
5.3 Conclusion
In conclusion, it is evident although Islamic banks do not distribute returns to current
account owners, the servicing of these accounts, despite their cost, not only increases the
rate of profit, because the deposits are not subject to distribution as they are guaranteed,
but these demand deposits also increase the multiplier of assets/equity rate which is
reflected in the form even a greater increase in the rate of profit. On the other hand, off-
balance sheet deposits are considered an attractive way to increase the number of clients
in addition to being a very important vehicle to increase the rate of shareholders’ returns,
because it increases the earnings from the agency activities, keeping in mind that these
earnings are less affected by investment risks to which other banking earnings are
subjected.
It can also be concluded that that maximization of profit is the objective of the highest
priority for all investment institutions created by private individuals. Consequently, all
private-sector financing institutions have one fundamental objective: to make as much
profit as they can and Islamic banks are not any exception but require effective strategies
that can ensure that they are as profitable as possible.
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5.4 Recommendations
It is recommended that organizations should employ strategic planning as a way of
moving towards their desired future state. Strategic planning, more than anything else, is
what gives direction to an organization. It must be realized that maximization of profit is
the objective of the highest priority for all investment institutions created by private
individuals.
It is also recommended an organization’s strategy must be appropriate for its resources,
circumstances and objectives. The process involves matching the companies' strategic
advantages to the business environment the organization faces. Companies must also
deploy new technologies to support key business objectives. This is because globalization
of markets, fluctuations in world economy, diversification in services, mergers,
acquisitions and industry deregulations are but a few of the challenges faced by
companies today.
5.5 Suggestions for further Research
The study suggests further research on the establishment of the strategic management
practices on performance of Islamic banks in Kenya a case of Gulf African Bank. The
study will supplement the findings of this study by providing information on the strength
and weaknesses of experienced in the implementation strategic change management
practices. This research therefore should be replicated in other Islamic banks in order to
establish whether there is consistency among them on strategic change management
practices.
47
Additionally, further studies should be carried out in order to determine performance of
Gulf African Bank. This is in relation to identifying other outside influences over which
they have little control; political/legal, economic, social/cultural and technological
factors. This may also include new government policies, fragmented markets, changing
lifestyles, activities of competitors and explore how these will relate to your mission.
48
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APPENDIX: INTERVIEW GUIDE
STRATEGIC MANAGEMENT PRACTICES AT GULF AFRICAN BANK
STRATEGY FORMULATION
1) Does Gulf African Bank have vision and mission statements?
2) What are the policy documents for strategy formulation?
3) Describe the process of developing the vision and mission statements
4) Describe how vision and mission is communicated to employees
5) Describe the process of setting objectives in your organization?
6) Do you carry out situational analysis during the planning process? If yes, which tool
and techniques do you use?
7) Which factors in the internal and external environment have had an impact on
strategy formulation in the organization?
8) How do you develop strategies for operations? What tools and techniques do you
use?
9) What challenges does Gulf African Bank face while responding to changes internal
and external environment?
STRATEGY IMPLEMENTATION
10) What is the process of implementing strategies at Gulf African Bank?
11) How are the strategies communicated to employees?
12) In which ways are the employees empowered to implement chosen strategies?
13) What measures are in place to recruit and retain best employees?
14) What challenges have been encountered in implementation of strategies at Gulf
African Bank and how have they been dealt with?
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STRATEGY EVALUATION
15) How do you monitor success of Gulf African Bank strategic plan?
16) Is Gulf African Bank involved in continuous review of its strategic plan?
17) What influences review of the strategic plan and how often do you review the
strategic plan?
18) Are corrective measures and procedures in the strategic management process
institutionalized? If yes, which measures and procedures are in place?
19) Are employees empowered to take corrective actions?
20) Who is involved in strategy evaluation?
21) What are the challenges facing strategy evaluation?